Airlines: the bold and the bankrupt

Over the weekend, the Wall Street Journal’s Matthew Kaminski published an interview with Bill Ayer, the head of Alaska Airlines, in which Ayer discussed his strategy for building a profitable carrier. Alaska, the seventh-largest U.S. airline, is an oddity in the industry. As Kaminksy notes:

It shuns cross-continental alliances and mega-mergers. It doesn’t make a priority of “market share” or “capacity discipline,” the industry buzz words … Alaska shares rose 30% last year, making it the only major airline to show a full-year gain. The industry was down 25% on average. Alaska’s market capitalization of $2.78 billion compares with $1.56 billion for US Airways, the fifth-largest carrier, whose revenues are three times those of Alaska.

Alaska has succeeded in part by embracing metrics the rest of the industry ignored for years: costs and return on invested capital. It made moves like outsourcing maintenance and other cost-cutting efforts long before the rest of the industry began embracing a similar strategy. But Alaska is almost more concerned with running a profitable business than with grabbing market share, benefiting both its passengers and its employees in the past decade.

The lure of market share has long dogged larger carriers, and it continues to dog them still. Market share relative to competitors was a key rationale in Continental’s decision to pursue a merger with United, for example. Alaska’s bigger-isn’t-better mindset may sound familiar to fliers in Houston, though. It’s similar to the mantra Continental embraced during the Gordon Bethune era.

But, American also wants to expand departures from its biggest hubs by 20 percent in five years — with 15 percent fewer employees. As Snyder points out:

In the end, this doesn’t sound much like a turnaround plan at all. It sounds like an airline continuing to push forward with its same old strategy, just with a new fancy lower cost structure to help it stumble into profitability.

Is it any wonder why the “legacy” airlines seem perpetually unable to solve their problems?